Cyprus was rushing to meet a four-day deadline for
a new bailout plan on Thursday after Europe stepped up pressure on
lawmakers in Nicosia to agree to rescue measures for the small
eurozone member state's troubled banks.
One measure agreed on by political party leaders and the president
was the creation of an "Investment Solidarity Fund" that would
consist of donations by businessmen, ordinary Cypriots and foreign
investors.
Details of the bill, which are still being ironed out, will be
reviewed by the cabinet on Thursday evening, government spokesperson
Christos Stylianides said.
Nicosia needs urgently to come up with a series of measures that
could raise 5.8 billion euros (7.5 billion dollars) it needs to
qualify for a 10 billion euro rescue loan from the eurozone and the
International Monetary Fund (IMF).
Other measures Cyprus is exploring as part of a "Plan B, "include
seeking some form of Russian help, applying a small tax on bank
deposits, dipping into pension funds as well as assets from Cyprus'
wealthy Orthodox church.
Finance Minister Michael Sarris, who is in Moscow in an effort to
clinch a deal, ruled out a loan saying help would come in some form
of an investment.
"We will have a programme of support for Cyprus by Monday," said
Central Bank of Cyprus Governor Panicos Demetriades, after the
nation's parliament comprehensively rejected a bailout deal agreed to
on the weekend by European finance ministers, which imposed a
controversial levy on bank deposits in Cyprus.
Earlier on Thursday the European Central Bank set out a deadline
to sign off on a bailout by saying it would only provide emergency
funding for Cyprus' banks until Monday, as a result raising the risks
of a collapse of the nation's financial sector.
After Monday "Emergency Liquidity Assistance could only be
considered if an European Union/International Monetary Fund programme
is in place that would ensure the solvency of the concerned banks,"
the ECB said in a statement.
Cyprus banks have been shut since last Friday and will remain shut
until Tuesday to prevent a run.
Long queues could be seen at ATM machines across Cyprus, with many
reported to already be out of cash.
Reports said shops and petrol stations were not taking credit
cards and there were shortages of medicine as suppliers were refusing
to accept credit from retailers.
Highlighting the standoff between Cyprus and the European Union,
the President of the eurozone group of finance ministers Jeroen
Dijsselbloem repeated on Thursday that Cyprus would have to bear part
of the burden of any bailout.
"The eurozone stands ready to deliver that kind of support, but in
order for it to be sustainable, there needs to be an element of
burden-sharing from the Cypriot side," said Dijsselbloem, who is also
the Dutch finance minister.
Analysts say that without a contribution from Cyprus, any
EU-backed bailout would not pass the German Parliament, which also
has to agree to the rescue plan.
In the meantime, the Frankfurt-based ECB's move also triggered
renewed uncertainty on European financial markets about how the
Cyprus crisis will be resolved and resulted in long queues forming at
cash machines across the country.
Reports were also emerging that the growing economic chaos in
Cyprus was leading to cash machines not being refilled and some
companies unable to pay their employees' wages.
Up until the ECB's announcement the market reaction to the drama
unfolding in Cyprus has been relatively subdued.
There has also been no sign of any contagion spreading to other
parts of the eurozone with officials so far having successfully
headed off concerns of a Cypriot-style bank levy being imposed in
states at the centre of the eurozone debt crisis such as Spain and
Italy.
But by mid-morning trading, the ECB's threat to end the flow of
emergency funds to Cypriot banks sent the eurozone's blue-chip
Eurostoxx 50 index down by 0.9 per cent.
After gaining ground in recent days, the euro slumped 0.2 per cent
to 1.2904 dollars amid investors' fears about the fate of the bailout
for Cyprus' ailing banking sector.
The Fitch credit rating agency also sharply criticized Europe's
handling of the Cyprus crisis.
It said the unprecedented inclusion of the one-time tax in Cyprus'
bailout "inevitably increases the danger of contagion risks within
the eurozone" and "sets a precedent that depositor bail-in mechanisms
are now an acceptable policy tool."
A surprise sharp fall on Thursday in the eurozone's closely
watched Purchasing Managers' Index (PMI) for March underscored the
threat posed to the eurozone by the crisis surrounding Cyprus.
"The deteriorating situation in Cyprus also raises the prospect of
business and consumer confidence falling further across the single
currency area, and possibly dragging the PMI numbers down further in
April," said Chris Williamson, chief economist with the research
group Markit, which released the survey.
